Buying real estate can be expensive. It ties up your capital for years, and there’s a lot that can go wrong as an investor.
There’s a lot you need to know to be a traditional investor in real estate. Do you really want to be a landlord? Do you know the real estate market in your area? You may find yourself having to remodel homes, work with realtors, find tenants, and a host of other issues if you want to go the traditional route of investing in real estate.
But, there are other ways that you can invest in real estate with little money. Imagine investing without having to worry about finding tenants, fixing leaky pipes in the middle of the night, or securing mortgages for investment property.
Here are three ways that you can start investing in real estate for very little money.
Crowdfunded Real Estate Investing
Peer-to-peer lending sites, like Lending Club and Prosper, have paved the way for money other companies to enter the market for crowdfunding investments. While peer-to-peer lending sites focus on investing in loans directly with borrowers looking to typically refinance high-interest debt or pay for a big event like a wedding or medical bills, there are now several crowdfunding real estate companies that you can invest with as well.
A few of the biggest names in crowdfunding real estate are websites like Patch of Land, RealtyShares, PeerStreet, and others. Many of these companies allow investors to fund typically short-term deals or invest directly in a real estate investment trust type of investment product. Crowdfunding real estate companies like these often cater to large flippers who are looking for short-term financing and are in and out of properties in a matter of months.
Crowdfunded real estate investing pools money from many investors to fund a project for the actual real estate investment property owners. These crowdfunded real estate investment companies do all of the work for the investor. They find the deals, set up financing, and manage the payments. You simply choose which real estate projects that you want to invest in and buy shares just like you would an ETF, mutual fund, or other investment.
Most of these companies have very small minimum investment requirements, which make it easy for customers to invest in real estate while risking very little capital. Investing this way also allows investors to diversify their real estate holdings, spreading their capital out over a large number of deals, which you wouldn’t be able to if you were actually buying property yourself to rent out to tenants.
Crowdfunded real estate allows you to invest with a minimal amount of money and little time commitment with a smaller amount of risk to your capital instead of doing it all yourself.
Crowdfunding also allows you to invest in real estate that you might not otherwise get to be a part of participating in as an individual. Through crowdfunded real estate sites, you might be able to invest in properties like shopping malls, commercial real estate, or large apartment complexes that would have taken millions of dollars in capital if you were to try to invest on your own.
If you don’t want to own a rental property or invest with a group in a condo or apartment complex, crowdfunded real estate might be a great investment option for you.
Real Estate Investment Trusts (REIT)
Another great option to allow you to invest in real estate very cheaply is by investing in a real estate investment trust (REIT). A REIT is very similar to a mutual fund. Like a mutual fund, you can buy shares in a REIT on all of the major stock exchanges.
You can find a REIT that specializes in almost any type of real estate that you want to invest in buy maybe wouldn’t normally get the chance to participate. You can invest in REITs that specialize in shopping malls, large residential subdivisions, commercial properties, condos and apartment complexes, and a host of other types of real estate. There are other REITs that are diversified and invest in several different types of real estate.
Like mutual funds, many REITs have low minimum investment requirements. You can also dollar cost average and invest a set amount each month in a REIT just like you would a mutual fund or an ETF.
One of the best advantages of a REIT is that the investment company, which manages and owns the REIT must pay out 90% of its profits as dividends to shareholders every year. REITs are an excellent source of income for investors looking for another income stream.
Rent Out a Portion of Your Home
Another way that you can invest in real estate for little or no money is to rent out a portion of your current home. Renting out a section of your home is an easy way to ease into the real estate investing world.
If you have an extra bedroom in your home that you’re not using or a basement even, you can rent that out to someone and test the waters of being a landlord. The test will let you see what it is like to screen tenants, deal with issues, collect rent, and ultimately maybe have to evict tenants.
You can also ease into this portion of real estate investing using Airbnb. Airbnb makes it easy to rent out a portion of your home or your entire house to visitors. You might not consider this typical real estate investing, but it is a way to get your feet wet and make your real estate earn you an income for very little expenses out of your own pocket.
Airbnb has a built-in system and platform to help you find and screen out tenants. It helps you collect payment for the nights people stay in your house, and it gives you a lot of flexibility.
So, start with a spare bedroom or your basement. Renting out just a small space in your current home can be a great way to ease into real estate investing. Who knows? Maybe this trial will morph into an investment in a second home at a vacation destination that you rent out more consistently. You never know where these test will take you.
Investing in a rental home near where you live isn’t for everyone. You don’t have to have a large pool of capital or hefty mortgage to start investing in real estate. You can cheaply invest in real estate, and the type of real estate that interests you the most if you look at other options such as crowdfunding websites, REITs, or simply renting out a room.
Have you tried investing in real estate for cheap? How did you start investing? Are there other ways to invest in real estate with little capital up front?